NEW YORK – Interest rates just keep on rising, and stashing your cash now yields hefty returns if you know where to look. That steady income can be a real boost to your investment returns, especially when the stock market is as volatile as it's been for the past month.
Competition among retail banks remains fierce, as evidenced by the competitive rates for online savings and money-market accounts. You'll get 4.25% from an ING Direct savings account and 4.65% at Emigrant Direct and HSBCdirect. Capital One's money-market is yielding 4.55%.
Certificates of deposit, which allow you to reap a fixed rate by depositing your money for a set period, are averaging 4.81% for one-year terms and 4.89% for five-year terms, according to Bankrate.com. Of course, that's an average, and some go quite a bit higher.
Five-year U.S. Treasury notes are paying 5%, with three-month Treasury bills paying just a little bit less.
While rates are up thanks to the Fed raising its benchmark rate 16 times in the last two years, the stock market has taken a tumble over inflation fears. That means investors are worried the rate hikes may not be over. If they're right, you'll want to stay out of long-term investments that pay a fixed rate because you'll miss out if and when yields keep going up.
Money-market and savings accounts readjust what they pay on a regular basis, so they're your safest bet. Besides, long-term bonds and CDs aren't paying much more than short-term ones — a "flat" yield curve — so there's little incentive to sink your money into them.
You can safely get the higher returns of bonds and CDs without locking into today's rates by "laddering," buying products with varying dates of maturity.
Another way to do that is to invest in a mutual fund that buys short- or intermediate-term bonds. You'll get the immediate benefits of income without committing to investments that won't be as attractive if the Fed keeps on raising interest rates.
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